The U.S. manufacturing sector posted strong growth through April, although the pace of expansion slowed somewhat due to rising commodity prices and global supply challenges.

Business activity in United States manufacturing continued to expand across a broad range of indicators in April, following robust growth in March and February. Although the rate of expansion slowed again last month due to increased pricing pressures and supply chain challenges, overall performance remained strong, highlighting manufacturing’s important role in the nation’s economic recovery.

According to the Institute for Supply Management’s (ISM) latest manufacturing Report on Business, U.S. manufacturing expanded for the 21st consecutive month in April, parallel to the overall U.S. economy, which grew for the 23rd consecutive month.

The ISM’s purchasing managers’ index (PMI), a key monthly gauge of the manufacturing sector, was 60.4 in April, down from the 61.2 reading in March, which was near a historic high. Despite the slowdown, the April PMI still represented one of the fastest growth rates in years and was well above the 12-month average of 58. Readings above 50 indicate growth.

Economists polled by MarketWatch had forecast the index to drop to 59.5 last month.

“The recent trend of rapid growth in the manufacturing sector continued in April as the PMI registered above 60 percent for the fourth consecutive month,” Norbert J. Ore, chair of the ISM Manufacturing Business Survey Committee, said. “While the manufacturing sector is definitely performing above most expectations so far in 2011, manufacturers are experiencing significant cost pressures from commodities and other inputs.”

The past relationship between the PMI and the general U.S. economy indicates that the average PMI of 61 for the first quarter of 2011 corresponds to a 6.5 percent increase in real gross domestic product (GDP). At an annualized rate, the PMI for April alone corresponds to a 6.3 percent yearly increase in GDP.

Seventeen of the 18 industries tracked by the ISM reported growth last month: wood products; plastics and rubber products; primary metals; transportation equipment; fabricated metal products; computer and electronic products; apparel, leather and allied products; machinery; textile mills; paper products; electrical equipment, appliances and components; nonmetallic mineral products; miscellaneous manufacturing; food, beverage and tobacco products; chemical products; printing and related support activities; and petroleum and coal products. The only industry that reported contraction in April was furniture and related products.

The ISM’s new orders index fell from 63.3 in March to 61.7 in April, signaling that demand continued to increase but at a slower pace, while the production index dropped from 69 to 63.8 over the same period. Supplier deliveries fell from 63.1 to 60.2, while employment dipped from 63 to 62.7. Following two months of decline, inventories rose from 47.4 to 53.6 in April.

“The New Orders and Production Indexes continue to drive the PMI, as they have both exceeded 60 percent for five consecutive months,” Ore added. “Manufacturing employment appears to have developed significant momentum, as the Employment Index readings for the first four months of 2011 are the highest readings in the last 38 years.”

Despite these promising signs, manufacturers face mounting concerns over pricing pressures. The ISM prices index rose from 85 in March to 85.5 in April, the highest level since July 2008 and the 22nd consecutive month the index registered above 50. Seventy-two percent of supply executives reported paying higher prices last month, while only 1 percent reported paying lower prices.

“U.S. companies are coping with a steep rise in commodity prices. The [ISM] survey’s prices paid index rose to the highest level in nearly three years. Aluminum, chemicals, corn, oil, plastics and steel were all reported to be more expensive than the previous month,” the Associated Press reports. “Many companies are hesitant to pass along the added costs to the consumer, who is coping with 8.8 percent unemployment and slow job growth. Instead, the higher prices are squeezing profit margins.”

Prices seem poised to continue rising and narrowing manufacturers’ profit margins for the foreseeable future, particularly as global supply chain disruptions make certain materials and components more difficult to obtain.

According to the Wall Street Journal, “The slowdown in U.S. activity came as manufacturers reported strong demand from abroad but also noted the effect of rising raw-material costs and scattered supply disruptions related to Japan’s March 11 earthquake.”

Earlier

Manufacturing Sector Continues Strong Growth

Manufacturing Grows at Fastest Pace in Almost 7 Years

Resources

April 2011 Manufacturing ISM Report on Business
Institute for Supply Management, May 2, 2011

U.S. Manufacturing Sector Cools Off Slightly
by Jeffry Bartash
MarketWatch, May 2, 2011

Weak Dollar Gives U.S. Factories Strong Lift in ’11
The Associated Press, May 2, 2011

Manufacturing Costs Hit Factories’ Activity
by Sara Murray and James R. Hagerty
The Wall Street Journal, May 3, 2011